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Unformatted text preview: The economics of information Other ways to help decision-making How much information is enough? Other investment rules More determinants of decision making Valuing information Information is valuable However, information is costly to gather Note costs could be in terms of money and/or time How much information should be gathered? Also, who should gather the information? The economics of information Information is valuable for high-price transactions, since even a 5% difference in NPV can be a lot of money Outside consultants are often helpful here They are knowledgeable about a market, which is valuable Consultants Consultants are knowledgeable about the market in question We are willing to pay for their services What is the optimal amount of services? As usual, we will use marginal analysis We will search for information is long as MB &gt; MC The consultant often provides this information, but at a cost More on consultants Basic information can be provided at low cost, since many people are usually knowledgeable in the topic Very specialized information can be costly Someone may have to do substantial research to get this specialized information MC of information usually increases at an increasing rate Marginal benefit of information Basic information about a product is usually very valuable Very specialized information usually has little value MB of information typically gets steeper as the number of units increases Some examples of MC and MB curves of information Optimal amount of information?...
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